Oak Tree Inn is the REIT’s largest railway customer, and the renewal encompasses hotels in 13 states that cover 1,363 guestrooms for railroad employees — or approximately 40 per cent of AHIP’s total railway hotel guestrooms. It guarantees minimum occupancy at 2015 levels over the term of the agreement.
Railway companies pay for 60 to 100 per cent of the rooms in their contracted hotels for their freight line crews, whether they’re occupied or not, providing stability for AHIP (HOT.UN-T).
“We are pleased that all 15 new contracts have higher daily rates accompanying the minimum room guarantees, and now also include built-in cost-of-living escalators that will provide stable and rising cash flows over the coming years,” AHIP chief executive officer Rob O’Neill said in a statement.
“An extensive US$1.8 million property improvement program has also begun at these 15 hotels, including significant room upgrades.”
The contract renewal properties are managed by TR Lodging Enterprises Inc., a wholly owned subsidiary of O’Neill Hotels & Resorts Ltd.
AHIP also announced today it has agreed to acquire through its subsidiaries a 70-room hotel located in Fort Scott, Kan., secured by a new multi-year rail crew lodging contract.
The Fort Scott property is being acquired for an aggregate purchase price of US$3,315,000, including planned capital expenditures and excluding closing and post-acquisition adjustments.
“We are pleased to announce this conversion opportunity where we will acquire an existing hotel at well below replacement cost and renovate it to industry-leading ‘Dark and Quiet’ standards that satisfy the needs of our rail crew clientele,” O’Neill said in a statement.
“We expect this acquisition to be immediately accretive to AFFO as we continue to execute our strategy of owning the largest and highest quality chain of rail crew lodging properties in the United States.”
Since its initial public offering 32 months ago, O’Neill said AHIP has increased its guaranteed room percentage on the railway portfolio from 74 to 77 per cent and increased the weighted average remaining term on its 43 railway contracts from 3.5 to 5.2 years.
Railway guestroom additions
AHIP has also added more than 900 railway guestrooms, increasing its rail portfolio by more than 35 per cent, and is expanding room capacity at four high-occupancy hotels to meet rising demand.
The REIT’s development partner, SunOne Developments Inc., is beginning construction on three new 24-room expansions that will open during the first half of 2016 to complement the recently completed expansion in Dexter, Mo.
Upon completion of the Fort Scott Property acquisition, AHIP’s portfolio will consist of 79 hotels totalling 6,892 guest rooms, with 44 rail crew hotels totalling 3,561 guest rooms and 35 nationally and internationally branded hotels with 3,331 guestrooms.
Most of AHIP’s properties are located in secondary and tertiary markets in the United States and are in close proximity to railroads, airports, highway interchanges and other demand generators.